MAKO Surgical Corp. (MAKO): It’s OK, You Can Exhale Now

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It’s OK, MAKO Surgical Corp. (NASDAQ:MAKO) shareholders; you can exhale now.

Shares of the robotic surgery specialist traded up more than 4% after the company reported earnings yesterday. For those of you who are disappointed that the stock didn’t absolutely skyrocket, remember that this muted response is a heck of a lot better than the violent 37% plunge investors endured after MAKO’s dismal first quarter earnings last year.

MAKO RIO System, MAKO Surgical stock

Source: MAKO Surgical.

The numbers
On Monday, I noted that MAKO Surgical Corp. (NASDAQ:MAKO) management desperately needed to at least meet tempered expectations to show investors they have a firm grasp on where the business is headed.

So, how did they fare?

On one hand, the company posted revenue of $24.8 million, slightly exceeding analysts’ estimates, which called for sales of $24.4 million.

MAKO Surgical Corp. (NASDAQ:MAKO)On the other hand, MAKO Surgical Corp. (NASDAQ:MAKO)’s net loss improved 18% year-over-year and came in at $9.6 million, or $0.21 per share. Unfortunately, that missed analysts’ expectations of a net loss of $0.19 per share.

However, it’s important to note that included in that number was “a non-cash and non-operating expense of $661,000 associated with the change in fair value of a derivative asset” related to the company’s previously announced credit facility agreement with Deerfield Management. When we back out that expense, MAKO’s non-GAAP loss was exactly what analysts had hoped for at $0.19 per share.

As an aside, management also told investors that they’re confortable with MAKO Surgical Corp. (NASDAQ:MAKO)’s current cash balance, so have no intention of drawing on the costly Deerfield credit facility by the time it expires on May 15. As a result, they anticipate cash burn will increase as the inaction will invoke a $1 million “no draw fee” to Deerfield in the second quarter.

In addition, management also confirmed during the conference call that they agreed to pay approximately $1 million to Stanmore Implants to acquire the company’s robotic assets as a result of last month’s patent complaint resolution.

System sales
All told, five RIO systems were sold during the quarter — this time all to domestic customers — bringing MAKO’s commercial installed base of RIO systems to 161 and with all but five here in the U.S. In addition, revenue from two previously deferred international sales was recognized this quarter after all revenue recognition criteria were satisfied.

Even better, all five of the new systems sold included MAKO Surgical Corp. (NASDAQ:MAKO)’s $150,000 total hip arthroplasty upgrade, while one existing customer upgraded its already-placed RIO platform with the THA add-on. As of March 31, 102 of the 156 RIO systems in place currently have the MAKOplasty THA application installed.

A total of 2,988 MAKOplasty procedures were performed last quarter, representing a 3% sequential increase and a 30% rise from the same year-ago period.

Of those 2,988 procedures, 467 were THA surgeries. While that may seem like only a small improvement over last quarter’s 395 THA surgeries, remember that it represents an 18.2% sequential increase. Considering that MAKO Surgical Corp. (NASDAQ:MAKO)’s hip business is still in its infancy, 467 hip procedures is more than satisfactory.

Also, remember that the company told us last quarter it would be reporting monthly utilization numbers on a per-site rather than a per-system basis to better reflect the now-material contributions from non-commercial international systems. This quarter, monthly utilization per site fell to 6.6 procedures, compared with 7.1 procedures per site in the same year-ago period. Despite the drop, however, that number still remains well within the bounds of normality.

Guidance and cash burn
Keeping in mind that the first quarter of each year tends to be MAKO Surgical Corp. (NASDAQ:MAKO)’s slowest, the company felt comfortable maintaining its guidance of 45 to 48 RIO systems sold and 13,500 to 14,500 MAKOplasty procedures performed in 2013.

Finally, MAKO had cash and equivalents remaining of $71 million at the end of March, compared to $73.3 million as of Dec. 31, 2012. Management also reiterated they continue to expect to throw between $22 and $27 million in the oven when all is said and done at the end of this year, so should end 2013 with around $46 million in cash on the books.

Clinical research and marketing
MAKO Surgical Corp. (NASDAQ:MAKO) also highlighted the previously announced favorable results of a randomized controlled trial involving 100 patients who underwent unicompartmental knee arthroplasty procedures. More specifically, 50 of the patients had opted for MAKO’s robotic solution, and 50 had received manually placed Biomet Oxford implants.

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